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ASK THE EXPERTS WEBINARHOW RETAIL INDUSTRY TRENDS AFFECT TODAY’S FINANCE & ACCOUNTING FUNCTIONS
March 12, 2020
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PRESENTERS
2
Mark Cox MANAGING DIRECTOR
Years of Experience: 11
Expert Areas: Technical Accounting, Capital Markets and Internal Controls
Industries Served: Manufacturing, Technology and Energy
Anand Raghuraman EXECUTIVE MANAGING DIRECTOR
Years of Experience: 23
Expert Areas: Strategy and Performance Improvement
Industries Served: Retail and Consumer Products
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KEY REMINDERS
Riveron webcasts – past and upcoming
4 polling questions must be answered to obtain CPE
If you have questions, feel free to ask in Q&A option in Zoom
Webinar evaluation form & CPE certificate will be emailed to you
On demand video is not eligible for CPE
You will receive a follow up email including:
Access to this webinar recording and deck
The ability to join our Webinars Mailing list to receive future invites
Presenter contact info
3
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LEARNING OBJECTIVES
4
1 Understand Key Trends Affecting The Retail Industry
2Understand How Industry Trends Affect Technical Accounting Areas
3Understand How Industry Trends Affect IT Systems, Business Processes and Internal Control Considerations
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THE STATE OF RETAIL
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6
are facing the largest
disruption that we have
seen in generations
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SHOPPING HABITS ARE EVER EVOLVING
7
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WHAT DRIVES THIS ‘DISRUPTION’?
8
1. ConsumersRelentlessly increasing consumer expectations, changing tastes, and declining loyalty, challenge retailers to deliver differentiated and compelling customer experiences
3. TechnologyDigital innovation changes the tools, capabilities
and talent that retailers need to compete; forcing retailers to meet consumers across an
increasingly complex array of digital channelsAI & machine learning
Augmented reality
Social listening
Indoor mapping
Chatbots & digital assistants
Interactive displays
Location-based marketing & analytics
Real-timepricing &targeting
2. Competitors
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THE US IS OVERSTORED
9
Retail space per person (square feet)
48.6
23.016.4
10.82.0
13.46.5 1.5
UnitedStates
Germany
UK JapanCanada Australia MexicoIndia
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10
46689111820212227334040404445465154555960
102107127140150170178200200200210222230250261
363390
512557
650800
2100
0 500 1000 1500 2000 2500
Macy's
Nordstrom
Lord & Taylor
Walmart
Barneys New York
J.C. Penny
Francesca's
Christopher & Banks
The Children's Place
Lowe's
Party City
Bed, Bath & Beyond
Sears
Pier 1 Imports
LifeWay Christian Store
Things Remembered
GameStop
Avenue
Chico's
Shopko
Charlotte Russe
Dressbarn
Payless ShoeSource
Sources: Moneywise, Coreinsights
2019 Total:>8,800
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…WHICH IS A 20-PLUS YEAR HIGH
11
4,7504,800
3,700
2,5002,900
2,000
4,500
3,100
2,000
2,800
1,8001,300
2,800
6,150
4,3003,800
2,5002,100
1,800
3,100
5,050
2,050
8,640
5,844
8,838
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Uni
t Clo
sing
Retail Unit Closings, USA, 1995-2019
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ECOMMERCE CONTINUES TO GAIN SHARE FROM BRICKS & MORTAR…
12
Overall retail expected to grow at ~2% CAGR from 2019-2023eCommerce expected to grow at a ~13% CAGR in same period449.9
514.8 586.9
668.6 759.4
858.9 969.7
8.9%9.7%
10.7%
12.0%
13.4%13.1%12.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
2017 2018 2019 2020 2021 2022 2023
% e
Com
mer
ce p
enet
rati
on
$ S
ales
(B
)
Retail ecommerce sales % total retail sales
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…WITH THE US LAGGING IN ECOMMERCE PENETRATION
13
4.1%
8.7%
8.7%
9.6%
10.8%
10.9%
22.2%
22.3%
35.3%
Italy
Japan
Germany
France
Canada
US
South Korea
UK
China
Source: eMarketer
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AMAZON’S NPS MAKES IT THE FIRST CHANNEL USED TO DO SEARCH
2015 2019
$398
44%
First channel used by US internet users when researching products digitally
2015–2019
66%
34%
21%
20%
14%
Amazon
Search engines
Retailers
Amazon Average offline
retailers
Average online
retailers
62%
46% 45%
Market-leading Net Promoter Scores (NPS)
15
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AMAZON HAS DOMINANT SHARE IN ECOMMERCE…
16
Over double the share compared to next 9 combined
Top eCommerce retailers in the US 2019By % share of total eCommerce sales
Sources: Marketingcharts, Yahoo News
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…AND ITS SHARE OF US MARKET KEEPS GROWING
17
Amazon represents two-thirds of total US eCommerce growth
0%
10%
20%
30%
40%
50%
60%
0
50
100
150
200
250
300
350
400
450
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$G
MV
(B
)
Amazon US GMV Amazon US Market Share
Sources: Company Reports, US Census Bureau, eMarketer, Needham & Company
…AND ITS SHARE OF US MARKET KEEPS GROWING
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Note: (1) As per 03-03-2020Sources: L2, Amazon, eMarketer
2006 - 2019 YTD1 growth
236%
Wal
mar
t
-11%
No
rdst
rom
’s
-63%
Mac
y’s
-99%
JCP
enn
ey
-100%
Sea
rs
AMAZON’S STOCK OUTPERFORMANCE VS COMPETITION IS STAGGERING
Am
azon
3,912%
18
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YOUNGER GENERATIONS BUY FROM DIFFERENT CHANNELS…
Source: Poshmark
19
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…AND GET TO DECISIONS DIFFERENTLY
57% FRIENDS, FAMILY, AND WORD-OF-MOUTH
41% INFLUENCERS
33% SOCIAL MEDIA MARKETING
31% BRICK-AND-MORTAR NETWORKS
29% PERSONAL SOCIAL MEDIA NETWORKS
16% ADVERTISING
16% EMAIL CAMPAIGNS
8% DIRECT MAIL
7% BILLBOARDS
20
E-COMMERCE TRANSACTIONS AND INTERACTIONS GROWING EXPONENTIALLY AT THE PEER-TO-PEER LEVEL
58% 75%are comfortable purchasing items through a social media platform instead of directly from a company’s website.
are comfortable buying an item directly from a person online
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THIS HAS AN IMPACT ON MINDSHARE OF SMALLER DNVBS
21
% of respondents, March 2019Purchased in the
PastWill Likely Try in
the FuturePersonal care & beauty (e.g., Glossier, Harry's, Dollar Shave Club) 52.1% 53.9%
Clothing & Apparel (e.g., Allbirds, Everlane, Bonobos) 49.0% 57.1%
Food & Drink (e.g., HelloFresh, Blue Apron, Freshly) 39.8% 45.4%
Travel & Transportation (e.g., Away, Uber, AirBnB) 36.4% 38.4%
Pet Care (e.g., Ollie, BarkBox, KitNipBox) 29.1% 36.1%Home & Furnishings (e.g., Casper, Brooklinen, Brandless) 29.1% 35.6%
Marketplace & Rental Chains (e.g., OfferUp, Jet.com, LetGo) 29.1% 30.5%
Wealth Management & Financial Services (e.g., Wealthfront, Acorns, Robinhood) 11.8% 14.7%
Other 4.1% 1.9%
US internet user familiarity with DNVBs
Source: Toluna Survey
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22
Retailers need to rethin role stores need to play
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~90%The good news
Source: U.S. Census Bureau
23
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LATE BREAKING NEWS: COVID-19 CORONA VIRUS
24
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POLLING QUESTION 1
25
Which retail industry trend has the biggest impact on your organization?
A. Rental and/or Subscription Model
B. Direct-to-Consumer (D2C)
C. Bricks & Mortar
D. Coronavirus
E. Other/Not Applicable
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CORONAVIRUS (COVID-19) CONSIDERATIONS FOR YOUR RETAIL BUSINESS
26
The impacts of Corona are predominantly negative for most retailers on both the supply and demand side
Retailers with sales in affected countries (international and domestic) will see sales decline
Retailers with supply chain and sourcing footprints in these countries will see disruption including reduced manufacturing capacity, issues with raw materials flow, impeded work-in-progress and finished goods shipping
Retailers in the Food and essentials categories will see short-term upticks with ‘panic’ buying
Off-price retail will see increased supply due to delayed deliveries for other retailers
As you saw, sales typically have reverted back to the mean in the past. The question is how long will that take
Key considerations for the Finance & Accounting organization:
Impairment – Does the impact of the virus on your organization trigger any impairment indicators that need to be assessed further?
Financial reporting and disclosures – What do you need to disclose to investors and stakeholders regarding the affect on your business? The SEC has commented and provided some guidance for public filers as to how to disclose the impact on your organization such as risk factors, management discussion and analysis, etc.
Business continuity and disaster recovery planning – Does your company have a plan in place to address? If not, how can you adjust your plan to factor in similar events?
Forecasting – If you are reporting to investors on a periodic basis, how will the disruption caused by the virus affect your forecast?
Supply chain flexibility – No company can plan for everything, but how can you make your supply chain more resilient in the future?
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RENTAL AND SUBSCRIPTION MODELS
27
These are two separate but related modelsThe rental model is one that satisfies consumers’ need for newness while simultaneously allowing consumers to ‘trade up’
The subscription model is a replenishment-type model
Example companies:Rent the Runway, StitchFix, Panera coffee subscription
Key considerations for the finance and accounting organization:Revenue Recognition – ASC 606
Inventory accounting
Tracking of inventory
Accounting for damages of returned items
Impairment and obsolescence
Disclosures
Supply chain
Customer acquisition costs (CAC)
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POLLING QUESTION 2
What is an area of accounting or financial reporting that will require a reassessment upon beginning a subscription or rental model?
A. Revenue recognition
B. Inventory accounting
C. Disclosures
D. All of the above
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DIRECT-TO-CONSUMER (D2C)
29
Direct-to-consumer are brands that typically were founded as digital-only companies
Example companies:
Away, Warby Parker, Everlane, Casper
Key considerations for the finance and accounting organization:
Revenue Recognition - ASC 606
Leasing - ASC 842
Inventory accounting
Supply chain
Customer acquisition costs (CAC)
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POLLING QUESTION 3
What is a name commonly used for companies that started as online/direct-to-consumer brands but may have shifted to different models (such as brick and mortar)?
A. Online Only brands
B. Digitally Native Vertical Brands
C. Non-Bricks & Mortar Retail
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THE POWER OF DATA
31
Data Analytics is very important in retail due to the abundance of data that retailers have
Data should be used to make better decisions across all functions
Data drives better personalization and customization of products
Key considerations for the finance and accounting organization:
Cost of data
Tracking and accumulating data
Data governance
Internal audit and internal controls
Cybersecurity
Leveraging systems and tools
Disclosures
Financial Planning and Analysis implications
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POLLING QUESTION 4
What is an area discussed today where retail brands are using the power of data within the accounting and finance function?
A. Financial Reporting
B. General Ledger Accounting
C. Financial Planning and Analysis
D. All of the above
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Q&A